Advancing Socio-Economics: An Institutionalist Perspective
Table of Contents
Part I On Socio-Economic Concepts and Methods
Part II On Institutions
Part III On Social Systems of Production-and Beyond J. Rogers Hollingsworth, Karl H. Müller
There has been considerable confusion in public discourse about the meaning of the concepts "the market" and "capitalism." Many discussants have tended to equate the market with capitalism. However, the two concepts are by no means synonymous. The market is a mechanism for coordinating specific types of relationships in transactions among economic actors (Boyer, 1997; Williamson, 1975, 1985). And as Polanyi (1944) and others (Hollingsworth and Boyer, 1997) have emphasized, the market, if left untamed and unconstrained by other coordinating mechanisms, is destructive of trust and other traditional values, on which its very existence is dependent.
On the other hand, capitalism is a much more complex and encompassing subject. It involves the entire institutional environment in which economic transactions of a society occur. Indeed, J. Rogers Hollingsworth in the following essay suggests that we need to think of capitalism as being synonymous with a society's social system of production. Of course, some scholars recognize that the market and capitalism are not identical phenomena, but they then equate capitalism only with the way that economic transactions occur within a particular society (see the discussion of the literature on business systems in Whitley, 1992a, 1992b). However, the essays in this volume are distinctive in the way that they demonstrate that capitalism consists of a configuration of economic, political, social, and cultural organizations which are intricately linked with each other. In order to understand the behavior of any particular system of capitalism, one must comprehend the interaction of the constituent parts of the entire system.
A social system of production consists of a society's norms, rules, habits, conventions, and values, which in turn influence the institutional arrangements (e.g., markets, the state, association, networks) which are dominant in a society. These in turn influence the structure and interaction of a society's business system with its institutional environment, which consists of the society's financial markets, its industrial relations system, its educational and training system, and the state. The state plays multiple roles in any social system of production. It both influences the rules of the system and is the ultimate enforcer of rules. Moreover, it can also be an owner of the means of production. Thus, because the state is unlike all other parts of the social system of production, it is treated repeatedly in this volume. These are themes which emerge in the essays in part 3, all of which complement some of the recent literature on varieties of capitalism (Crouch and Streeck, 1997; Hall and Soskice, 2001).
There has been an extensive literature about business systems (Whitley, 1992a, 1992b), but business systems are only a part of the larger domain of social systems of production. At the same time, the concept of a business system is much broader than that of the firm. The business system involves the relationships between firms and their suppliers, their customers, their competitors, their owners and other sources of capital, and their employees. And across societies, there are many ways that these relationships get defined.
In some countries-for example, the United States-there has been a long history of firms integrating vertically, that is, suppliers and processors are integrated within a firm. In other countries, these relationships may be defined by competitive pricing, by long-term relationships, and by other strategies. In Japan, suppliers and processors exist in industrial groups which have been defined from the subcontracting relationships between large firms and their suppliers. These relationships are strengthened by neutral stockholding and interlocking directorships. The extensive cross-company pattern of stock ownership among firms in many industrial sectors is an important reason why Japanese firms can forsake short-term profit maximization in favor of a strategy of long-term goals. Moreover, the pattern of inter-corporate stockholding encourages many long-term business relationships in Japan, which in turn reinforce ties of interdependence, exchange relations, and reciprocal trust among firms (Aoki, 1988; Whitley, 1992a; Gerlach, 1992).
In the literature on social systems of production, a standard problem is whether societies have a single social system of production. Hollingsworth in the following essay suggests that although there is heterogeneity in terms of how firms within a single country define their relationships with their suppliers, customers, competitors, employees, and financiers, there does tend to be a dominant pattern in most societies by which these processes are defined. As a result, the relationships between firms and their institutional environment are more complex in the United States than in most countries-due in part to the fact that the United States is not only a very large country in terms of space and population, but it also has considerable ethnic heterogeneity. In three of the following essays, Peter Hall, Steven Casper, and Sigurt Vitols focus on certain aspects of the contemporary German social system of production. In chapter 12, Peter Hall calls our attention to the important point that even though there are powerful forces of globalization very much at work in the world, the way these play out within societies is quite varied. It is the distinctiveness of social systems of production of societies which is responsible for this variation.
In chapter 13, Steven Casper emphasizes how the long established institutional structures of a society influence the kind of incentives and constraints which shape the development of particular industries-in this case, biotechnology in Germany. His essay makes important contributions to the literature of institutional theory, national systems of innovation, and varieties of capitalism.
Sigurt Vitols in chapter 14 emphasizes the important role of financial markets in shaping the distinctiveness of social systems of production. The way the financial markets are shaped in each society is extremely important in shaping its entire social system of production. In all capitalist societies, capitalists are motivated to earn a profit, but how profit is pursued is socially shaped. In some countries, profits are sought in the short term, while in others capitalists have a long-term perspective. And one of the major features influencing whether capitalists have a long- or short-term perspective is how the financial markets are organized in the society. Indeed, not only does the structure of the financial markets influence the time perspective of capitalists, but the time perspective also influences the relationships between labor and management. For example, in the United States, large firms-in comparison with those in other societies-have tended to expand on the basis of retained earnings or to raise capital from the bond or equity markets, but less frequently to use bank loans. As a result, over time American corporate managers have become dependent on the whims and strategies of stockholders and bond owners. Once financial markets became highly institutionalized, securities became increasingly liquid, as the owners of such securities have tended to sell their assets when they have believed their investments were not properly managed. Since management embedded in such a system has tended to be evaluated very much by current price and earnings of the stocks and bonds of their companies, it has had high incentives to maximize short-term considerations at the expense of long-term strategy. This kind of emphasis on a short-term time horizon has historically limited the development of long-term, stable relations between American employers and employees-a prerequisite for a highly skilled and broadly trained work force. Instead, the short-term maximization of profits has meant that firms in such a social system of production have been quick to lay off workers during economic downturns, and thus to remain heavily dependent on a lowly and narrowly skilled workforce.
But in contrast to the Anglo-American economies, the securities industries in Japan and Germany have been less well-developed, with the result that banks have long been much more important in supplying capital to firms than the equity and bond markets. How this has been done in Japan and Germany has varied, but the interesting thing is that where firms are dependent on bank loans rather than on the kind of equity markets found in the Anglo-American environment, the consequences have had some similarities despite their many differences. All of these factors also shape the behavior and performance of different market segments-as the Casper essay demonstrates. In short because the banking system and the bio-technology sector are part of the same social system of production, their behavior feed backs onto each other.
Chapter 15 by Raymond Russell and Robert Hanneman is a fascinating analysis of worker cooperatives. As suggested above, a critical issue which firms face is their relationship with their owners (e.g., sources of capital) and their employees. Their chapter is rich with suggestions of how the institutional environment of firms (e.g., the social system of production) influences the relationship between firms and their owners as well as their employees. Unfortunately, the social sciences thus far have a paucity of studies which explain why workers become owners of firms and how the institutional environment in which workers and employers are embedded influences their particular relationships. We believe that the kind of institutional analysis proposed in this book will advance an understanding of this important problem.
The concept social system of production suggests that societies have distinctive norms, habits, conventions, and values which are historically path-dependent. For this reason, it is a concept which suggests that there is still great variation rather than convergence in the social makeup of societies. It is in this context that Marie-Laure Djelic in chapter 16 has written "Exporting the American Model-Historical Roots of Globalization." Hers is perhaps the most sophisticated analysis yet to appear which discusses the interaction of the processes of societal convergence, divergence, and globalization. As a result of her essay, it will be necessary for scholars to reassess their views of how processes of globalization are restructuring relations among national societies.
In chapter 17 Jerald Hage and J. Rogers Hollingsworth pick up on a theme of variation in the institutional makeup of societies and argue that this leads to considerable difference in the way that market segments (i.e., industrial sectors) perform across societies. Because of the distinctiveness of the social system of production of each society, there is considerable variation in the industrial sectors in which societies perform well. This chapter also ties these themes to different types of innovativeness.
Table of Contents
Part I On Socio-Economic Concepts and Methods
Part II On Institutions
Rogers Hollingsworth Homepage
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